Tuesday, July 22, 2008

We are back to the price of Corn

There have been two editorials concerning ethanol and its affect on good prices. One stated that it could have little to no affect since only about 9% of all corn is for human consumption. This is the linear one step reasoning that politicians use all the time. It is indeed true that only 9% of all corn is sweet corn and the rest is used for other than human consumption. What do we use this other 91% of the corn for?

Farmers use it to feed their cattle. As corn prices go up, so does the price of beef. They use it to feed dairy cows. As the price of corn goes up so does the price of milk. The price of milk also increases the price of ice cream (smaller portions – same price), cheese and all other dairy products. They use it to feed chickens and pigs. Again as the price of corn goes up, so do the prices we pay.

Then there is a the corn syrup used in soda pop which everyone knows has gone from $4 per case to over $6.50 per case. The list goes on.

Yes, we may not eat corn directly, but a great many of the groceries we buy are greatly impacted by the price of corn. To say that Ethanol is not the reason for huge increase in grocery prices is just plain ignorant or worse.

How does a farmer decide what to grow? They look at the price of the commodity they can grow and based on risk and reward, choose what is best. With corn prices 100% higher than a year ago, how do you keep farmers planting sweet corn, sell it for more? Oil increase has increased the cost per acre. It takes about 8 gallons of diesel to plant corn. Corn yields are about 200 bushels per acre and the price per bushel is over $7. How large an impact on corn price is fuel? It certainly is not fuel. A much larger contributor is fertilizer. With more corn planted, the amount of fertilizer has increased greatly causing its price to escalate far more than fuel. Then we have demand from Ethanol producers and China. In simple terms, we have many variables working to increase the price of corn.

The government is artificially creating the demand for corn by the 51 cent per gallon tax credit on ethanol. Eliminate this tax credit and ethanol dries up, demand drops for corn and fertilizer and the price of corn will fall.

I have said it before and I will say it again, Ethanol is not a good use of our food crops nor is it energy efficient. Recently I read that it was 1.37 buts’ out for every Btu in. I have read a lot of reports and Purdue University has done a lot of research on this question. They have found and reported that Ethanol is not energy efficient.

Food for thought, no pun intended.

Take a dedicated farm devoted to growing corn for ethanol production. Do they include the farmer’s energy use in terms of house, car, etc, no? All of these must be included as well as the energy used to make the infrastructure to grow and process the corn into ethanol. They only way they show an energy balance is to use energy credits.

Energy credits are those credits given to the by-products sold from ethanol production. It is true that the by-products can be used for feed. However, they are not worth as much nor as good as the grain themselves.


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